All Topics / Finance / Positive geared = servicablility?

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  • Profile photo of Matt39Matt39
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    @matt39
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    I have borrowed money once for a block of land but am about to sell and purchase a house and land package, so I am new to borrowing but have a little experience. The house and land package I intend to buy will be positively geared, probably by $200 or more. Hence the rent is covering the mortgage and then some would this increase my borrowing power (taking away what I have already borrowed of course) ? I understand different lenders differ with criteria but surely this would be looked upon as a positive for myself to borrow more money?

    Interested because I dont want to max out my borrowing power too quickly, this project will cost around the $350k mark and im approved for over $600k. Hopefully I can move onto other projects considering I have more borrowing power left.

    I understand this is a broad question, just looking for any tips. Just trying to be thorough :)

    Profile photo of Jamie MooreJamie Moore
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    Most lenders will take somewhere between 75% to 80% of the gross rent for servicing. Therefore, the higher the rent, the better your servicing. The only caveat being certain postcodes/areas where lenders have placed restrictions on the percentage of rent they'll consider.

    Jamie

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    Profile photo of Richard TaylorRichard Taylor
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    Matt a $200 positive gearing i assume that is per month.

    Are you sure it is not a Display home with a leaseback arrangement or similar and if not you must be putting in a decent sized deposit.

    Are you sure you want to put that much in ?

    Remember over and above the cash deductions you will also receive non cash deductions you can claim such as Capital Allowance and Depreciation claims and this will aid your bottom line in terms of  cash flow.

    Cheers

    Yours in Finance

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    Profile photo of Matt39Matt39
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    Qlds007 wrote:
    Matt a $200 positive gearing i assume that is per month.

    Are you sure it is not a Display home with a leaseback arrangement or similar and if not you must be putting in a decent sized deposit.

    Are you sure you want to put that much in ?

    Remember over and above the cash deductions you will also receive non cash deductions you can claim such as Capital Allowance and Depreciation claims and this will aid your bottom line in terms of  cash flow.

    Cheers

    Yours in Finance

    That is weekly but only on interest only at 5% deposit. It's likely ill have to contribute 7.5%-10% because of the area it is in.

    Although it may not be $200 a week (that would be furnished) but $100 a week from what I'm told is not unachievable.

    It is a house and land package, the land is only getting registered towards the end of the year. 

    I don't know what you mean by a leaseback agreement can you explain that please?

    This is why im enticed to build as I will save on stamp duty and the depreciation on a new house im told is quite good for your claims (maybe $5000 a year?)

    Profile photo of Matt39Matt39
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    @matt39
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    Jamie M wrote:
    Most lenders will take somewhere between 75% to 80% of the gross rent for servicing. Therefore, the higher the rent, the better your servicing. The only caveat being certain postcodes/areas where lenders have placed restrictions on the percentage of rent they'll consider.

    Jamie

    Thanks for the info Jamie. What sort of areas do they have those restrictions? I'm looking at purchasing a house and land package in Chinchilla, do they not like mining towns?

    Profile photo of JPS25JPS25
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    Hi Matt we have 2 properties in Chinchilla both were house and land packages I can't answer your first question as we put in 20% deposit + costs using the equity from our own home. Rents vary depending on how many are available for rent at any time. So far we have been one of the lucky ones but have seen some sit for weeks going unrented so do be prepared for that and have plenty of back up funds. To get a better understanding of rents go to the estate agents not the builders or agents selling you the package, as they can give you a more realistic figure on what to expect for the size and type of house you are building. I am surprised you are getting a house and land for $350K great price if you are though there again is it on one of the smaller blocks they are now starting to do out there? Land has gone up quite a bit in value since we signed our first contract there end of 2009.As regards depreciation you should get more than $5000 just get a depreciation report done when finished all depends on cost of building & fittings etc. Also don't forget to take into account rates insurance etc too  Goodluck                                                                                                                                                                                                         

    Profile photo of Mick CMick C
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    @shape
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    1. Gross rent taken at 70-80% only

    2. Servicing rate is based on current standard variable rate + 2% 

    So are you still positive after increasing the rate to 2% and taking in gross rent of 70%?

    3. It will depend on location as well- http://www.genworth.com.au/lender-centre/tools-and-resources/location-guide-australia/ lenders like cat 1 and cat 2 locations…cat 3 can be a bit iffy and they may discount rent by 60%….

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    Profile photo of Matt39Matt39
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    Thanks for the reply JPS and Shape your comments are appreciated.

    JPS since this would be my first IP I have decided to can the Chinchilla idea for now. Seems to risky just now and I shudder at the thought I may have a house that I ultimately can't sell in a few years. I do not hope this happens to you but just your comment about houses sitting vacant is enough to make me try another avenue. I am leaning towards Toowoomba for the stability. I have consulted a real estate agent and 4 bedroom houses rent close to or over the $400 mark so looking into some house and land packages in Sanctuary Rise (Wilsonton). I am sure mining towns make people money from their properties however it is not for me at this stage, I do hope yours performs well.

    Profile photo of Matt39Matt39
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    @matt39
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    Shape wrote:

    2. Servicing rate is based on current standard variable rate + 2% 

    So are you still positive after increasing the rate to 2% and taking in gross rent of 70%?

    Can you explain what you mean by that? Please forgive my ignorance

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